As pound plunges, UK's Cameron defends EU deal to avert 'Brexit'

LONDON (Reuters) - The pound posted its biggest one-day loss in almost six years on Monday on concerns of a possible British exit from the EU, adding to the pressure on Prime Minister David Cameron as he mounted a defense of his deal to keep the country in the bloc.

The fall in the currency, as well as in government bond prices, was triggered by London Mayor Boris Johnson - a senior figure in Cameron’s Conservative Party - throwing his support behind the exit campaign.

Johnson, one of the country’s most popular politicians, gave the “Brexit” camp a much-needed figurehead when he announced his support on Sunday, just days after Cameron struck his deal in Brussels to hand Britain what he called a “special status”.

Cameron, addressing parliament to champion the deal as a good basis for Britain to stay in the EU, faced criticism from lawmakers in his divided party and exchanged barbs with Johnson, whose announcement had bitterly disappointed him.

The stakes are high in the June 23 referendum. A vote to leave would not only transform Britain’s future in world affairs but also shake the EU, which has struggled to maintain unity over migration and financial crises, by ripping away its second-largest economy and one of its main military powers.

Cameron called on politicians to campaign on what is best for Britain - in a veiled jab at Johnson, whose stance may be designed to attract widespread eurosceptic support among Conservatives in a bid to succeed Cameron, who has said he will step down before the next election in 2020.

“I am not standing for re-election, I have no other agenda than what is best for our country,” Cameron told a packed parliament. “I am standing here telling you what I think, my responsibility as prime minister is to speak plainly about what I believe is right for our country and that is why I will do every day for the next four months.”

He added: “We are a great country and, whatever choice we make, we will still be great, but I believe the choice is between being an even greater Britain inside a reformed EU or a great leap into the unknown.”

Both sides in the debate argue Britain would be financially better off if their cause succeeds.

Johnson, London mayor since 2008, defended his stance by saying those who argued Britain would not thrive outside the 28-member bloc were the same people who wanted the country to make the “catastrophic mistake” of joining the euro single currency.

“There are people who don’t think that Britain could stand on her very own two feet and all the rest of it. I have to say I think that is profoundly wrong,” the 51-year-old told the London Assembly, the elected body which holds the mayor to account.

Showing how sensitive markets have become to the uncertainty over a possible Brexit, sterling fell as much as 2.3 percent on the day to hit a seven-year low of $1.4057 GBP=D4 in early U.S. trading - following Johnson's Sunday announcement - before recovering by about 1 cent to around $1.4165 by 1800 GMT.

That still left it 1.7 percent down on the day - its biggest drop since the May 2010 elections that left Britain with a hung parliament.

HEAVYWEIGHT

Most lawmakers sat quietly through a recap of what the EU deal entailed, but broke out in cheers when Cameron mentioned the date of the referendum - something many of his own lawmakers have spent most of the last decade pressing for.

The prime minister received more support for his defense of staying in the European Union from opposition lawmakers in the Labour Party and Scottish National Party than from his own, which has been split over EU membership for decades.

London Mayor Boris Johnson arrives back at his home, in London, Britain February 21, 2016. REUTERS/Peter Nicholls

Johnson is a political showman whose light-hearted wit masks a fierce ambition. His decision to lobby against Cameron was welcomed by leaders of the ‘leave’ campaign, which has been dogged by splits between factions and lacked a uniting political figure to spread its message that Britain needs to regain its sovereignty.

“He is a superb campaigner so he’s a great asset,” former finance minister and chairman of the Vote Leave campaign Nigel Lawson told BBC radio.

Odds of a British exit rose to a 33 percent chance from about 29 percent after his announcement, according to bookmakers. A third of voters said Johnson would be important in helping them decide which way to vote, an Ipsos MORI poll showed.

“Until now, the Brexit side has lacked the backing of one of the heavyweight figures in UK politics,” Citi’s chief UK economist Michael Saunders wrote.

While Cameron’s most senior cabinet colleagues have stuck with him, six others have said they will campaign for an exit, highlighting the deep divide in his Conservative Party over Europe dating back to Margaret Thatcher.

But the prime minister was due to receive a boost from business leaders who were set to sign a letter saying the country would be better off in the bloc. Several corporate sources told Reuters the letter would be published on Tuesday.

Many businesses are keen to end the uncertainty that has weighed on markets and sent companies scrambling to come up with a ‘plan B’ if Britain votes to leave the bloc.

Cameron’s bid to remain in the EU also has the support of much of London’s financial district as well as most of the Labour Party, major trade unions, international allies and Scottish nationalists.

Pro-Europeans, including former Prime Ministers Tony Blair and John Major, have warned that an exit could also trigger the break-up of the United Kingdom by prompting another Scottish independence vote.